FORM 10-QSB.--QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
(As last amended by 34-32231, eff. 6/3/93.)
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period.........to.........
Commission file number 0-15676
DAVIDSON DIVERSIFIED REAL ESTATE III LIMITED PARTNERSHIP
(Exact name of small business issuer as specified in its charter)
Delaware 62-1242599
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (864) 239-1000
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) DAVIDSON DIVERSIFIED REAL ESTATE III LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
(Unaudited)
March 31, 1996
Assets
Cash and cash equivalents:
Unrestricted $ 602
Restricted-tenant security deposits 113
Accounts receivable 14
Escrows for taxes and insurance 150
Restricted escrows 178
Other assets 474
Investment properties
Land $ 2,821
Buildings and related personal property 30,404
33,225
Less accumulated depreciation (12,744) 20,481
$22,012
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 27
Tenant security deposits 113
Accrued interest 89
Accrued taxes 371
Other liabilities 99
Mortgage notes payable 24,001
Partners' Deficit
General partners $ (54)
Limited partners (1,011.5 units
issued and outstanding) (2,634) (2,688)
$22,012
See Accompanying Notes to Consolidated Financial Statements
b) DAVIDSON DIVERSIFIED REAL ESTATE III, LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
(Unaudited)
Three Months Ended
March 31,
1996 1995
Revenues:
Rental income $ 1,258 $ 1,171
Other income 114 141
Casualty gain 6 --
Total revenues 1,378 1,312
Expenses:
Operating 335 325
General and administrative 35 23
Property management fees 68 60
Maintenance 131 167
Depreciation 332 312
Interest 546 537
Property taxes 108 109
Adjustment to casualty gain -- 162
Total expenses 1,555 1,695
Net loss $ (177) $ (383)
Net loss allocated to general
partners (2%) $ (4) $ (8)
Net loss allocated to limited
partners (98%) (173) (375)
$ (177) $ (383)
Net loss per limited partnership unit $(171.03) $(370.74)
See Accompanying Notes to Consolidated Financial Statements
c) DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(in thousands, except unit data)
(Unaudited)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partners Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 1,013 $ 1 $ 20,240 $ 20,241
Partners' deficit at
December 31, 1995 1,011.5 $ (50) $ (2,461) $ (2,511)
Net loss for the three months
ended March 31, 1996 -- (4) (173) (177)
Partners' deficit at
March 31, 1996 1,011.5 $ (54) $ (2,634) $ (2,688)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
d) DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (177) $ (383)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 332 312
Adjustment to casualty gain -- 162
Amortization of discounts and loan costs 16 12
Casualty gain (6) --
Change in accounts:
Restricted cash (3) 3
Accounts receivable 15 (4)
Escrows for taxes and insurance (77) (102)
Other assets 4 2
Accounts payable (49) (24)
Tenant security deposit liabilities 3 (2)
Accrued taxes 108 109
Accrued interest -- 12
Other liabilities (43) (81)
Net cash provided by operating
activities 123 16
Cash flows from investing activities:
Property improvements and replacements (42) (64)
Deposits to restricted escrows (6) (2)
Receipts from restricted escrows 11 31
Net cash used in investing activities (37) (35)
Cash flows from financing activities:
Payments on mortgage notes payable (25) (23)
Net cash used in financing activities (25) (23)
Net increase (decrease) in cash and cash equivalents 61 (42)
Cash and cash equivalents at beginning of period 541 661
Cash and cash equivalents at end of period $ 602 $ 619
Supplemental disclosure of cash flow information:
Cash paid for interest $ 530 $ 513
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
e) DAVIDSON DIVERSIFIED REAL ESTATE III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Managing General Partner, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three month
period ended March 31, 1996, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1996. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Partnership's annual report on Form 10-KSB for the year ended December 31,
1995.
Note B - Clubhouse Damage
In November 1994, the clubhouse at Plainview Apartments sustained extensive
damage due to an electrical fire. The insurance proceeds to be received after
December 31, 1994, were originally estimated at $500,000. The destroyed
clubhouse had a net book value of $262,720 resulting in a casualty gain of
$237,280. A receivable for the estimated proceeds, along with the retirement of
the clubhouse's net book value and $202,280 of the corresponding casualty gain
was recognized at December 31, 1994. The remaining $35,000 of the $237,280
casualty gain was deferred at December 31, 1994, due to related expenses that
were not reimbursable by insurance. During the first quarter of 1995, the
Partnership reduced its estimate of the casualty gain by $162,000 due to
negotiations with the insurance carrier which modified the scope of the
clubhouse replacement and reduced the insurance proceeds to be received. During
the three months ended March 31, 1996, the Partnership recognized $6,000 of the
deferred gain. As of March 31, 1996, all insurance proceeds had been received
and approximately $4,000 of the deferred gain remained.
Note C - Transactions with Affiliated Parties
Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling
ownership interest in the Partnership's Managing General Partner. The
Partnership has no employees and is dependent on the Managing General Partner
and its affiliates for the management and administration of all partnership
activities. The Partnership Agreement provides for payments to affiliates for
services and as reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership.
The following payments were made to affiliates of Insignia during the three
months ended March 31, 1996 and 1995:
Three Months Ended
March 31,
1996 1995
(in thousands)
Property management fees $ 68 $ 60
Reimbursement for services of affiliates 27 18
Construction service fees 6 6
The Partnership insures its properties under a master policy through an agency
and insurer unaffiliated with the Managing General Partner. An affiliate of the
Managing General Partner acquired, in the acquisition of a business, certain
financial obligations from an insurance agency which was later acquired by the
agent who placed the current year's master policy. The current agent assumed
the financial obligations to the affiliate of the Managing General Partner who
receives payment on these obligations from the agent. The amount of the
Partnership's insurance premiums accruing to the benefit of the affiliate of the
Managing General Partner by virtue of the agent's obligations is not
significant.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Partnership's investment properties consist of two apartment complexes.
The following table sets forth the average occupancy of these properties for the
these months ended March 31, 1996 and 1995:
Average
Occupancy
1996 1995
Salem Courthouse
Indianapolis, Indiana 93% 92%
Plainview Apartments
Louisville, Kentucky 93% 89%
The Managing General Partner attributes the increase in occupancy at
Plainview Apartments to new clubhouse facilities and more emphasis on resident
retention and customer satisfaction. Also, new area restaurants and a retail
strip center adjacent to the property opened during this quarter thereby
increasing exposure to potential tenants.
The Partnership realized a net loss of $177,000 for the three months ended
March 31, 1996, compared to a net loss of $383,000 for the corresponding period
of 1995. Other income decreased for the three months ended March 31, 1996, as a
result of decreased cleaning and damage fees at Plainview Apartments and
decreased lease cancellation fees at both properties.
General and administrative expenses increased for the three months ended
March 31, 1996, compared to the corresponding period of 1995, due to increased
general partner expense reimbursements resulting from higher administrative
costs. Maintenance expenses decreased for the three months ended March 31,
1996, due to approximately $5,000 in non-recurring roof repairs at Plainview
Apartments in 1995 and $21,000 in various interior building repairs at both
properties in 1995.
The $162,000 adjustment to casualty gain recognized during the three months
ended March 31, 1995, was due to a reduction in the estimated insurance proceeds
to be received as a result of negotiations of the settlement with the insurance
carrier. The casualty gain for the three months ended March 31, 1996, relates
to the recognition of a portion of the deferred gain (See "Note B" of the Notes
to Consolidated Financial Statements).
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Partnership from increases in
expenses. As part of this plan, the Managing General Partner attempts to
protect the Partnership from the burden of inflation-related increases in
expenses by increasing rents and maintaining a high overall occupancy level.
However, due to changing market conditions, which can result in the use of
rental concessions and rental reductions to offset softening market conditions,
there is no guarantee that the Managing General Partner will be able to sustain
such a plan.
The Partnership held unrestricted cash of $602,000 at March 31, 1996,
compared to unrestricted cash of $619,000 at March 31, 1995. The increase in
net cash provided by operating activities for the three months ended March 31,
1996, was due primarily to increased accounts receivable collections, a decrease
in deposits to the tax and insurance escrow, and increased rental revenues.
Net cash used in investing activities and financing activities were comparable
for the three months ended March 31, 1996 and 1995.
The sufficiency of existing liquid assets to meet future liquidity and
capital expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets as well as meet future maturing mortgage obligations and related
refinancing expenses. Such assets are currently thought to be sufficient for
any near-term needs of the Partnership. The mortgage indebtedness of
approximately $24,000,000, net of discount, requires balloon payments at dates
ranging from October 15, 2003, to November 15, 2010, by which time the Managing
General Partner intends to sell or refinance the individual properties. The
principal debt of approximately $15,300,000 encumbering Plainview Apartments
requires interest-only payments and matures November 15, 2010. Approximately
$300,000 of second mortgage debt, net of discount, secured by Salem Courthouse
Apartments requires interest-only payments and matures October 15, 2003. The
first mortgage of $8,400,000, net of discount, secured by Salem Courthouse is
amortized over approximately 29 years and matures October 15, 2003. No cash
distributions were made during the first three months of 1995 or 1996. Future
cash distributions will depend on the levels of net cash generated from
operations, refinancings, property sales and the availability of partnership
cash reserves.
Salem Courthouse Apartments and Plainview Apartments are both owned by lower
tier partnerships known as Salem Courthouse, L.P. and Plainview Apartments,
L.P., respectively, in which the Partnership is the 99.99% limited partner. The
Partnership has retained substantially all control and economic benefits of the
properties.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
(b) Reports on Form 8-K:
None filed during the quarter ended March 31, 1996.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DAVIDSON DIVERSIFIED REAL ESTATE III
By: Davidson Diversified Properties, Inc.
Managing General Partner
By: /s/Carroll D. Vinson
Carroll D. Vinson
President
By: /s/Robert D. Long, Jr.
Robert D. Long, Jr.
Controller and Principal
Accounting Officer
Date: May 11, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Davidson
Diversified Real Estate III, L.P. 1996 First Quarter 10-QSB and is qualified in
its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000773679
<NAME> DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 602
<SECURITIES> 0
<RECEIVABLES> 14
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 33,225
<DEPRECIATION> 12,744
<TOTAL-ASSETS> 22,012
<CURRENT-LIABILITIES> 0
<BONDS> 24,001
0
0
<COMMON> 0
<OTHER-SE> (2,668)
<TOTAL-LIABILITY-AND-EQUITY> 22,012
<SALES> 0
<TOTAL-REVENUES> 1,378
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,555
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 546
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (177)
<EPS-PRIMARY> (171.03)
<EPS-DILUTED> 0
</TABLE>
